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US woos Asian energy allies to thwart Russia

US woos Asian energy allies to thwart Russia
By Guy Dinmore in Washington

Financial Times; Apr 29, 2006

The Bush administration is seeking to curb Moscow's influence in the
Caucasus and central Asia and weaken Gazprom's growing hold over gas
supplies to Europe with an effort to promote new oil and gas corridors
that would bypass Russia and exclude Iran.

US intentions were highlighted yesterday when President George W.
Bush welcomed President Ilham Aliyev of Azerbaijan to the White House,
stressing the importance of their security and energy relationship.

Next week's visit to Kazakhstan by Dick Cheney, the vice-president, is
further evidence that the US wants to shore up ties with key partners
in central Asia, having lost access to an important military base in
Uzbekistan last year. The vice-president will use the visit to press
for closer energy ties between Kazakhstan and Europe.

But analysts are concerned that an overall hardening of US policy
towards Moscow could drive Russia and Iran, which together hold nearly
half the world's gas reserves, into an energy-based alliance.

A senior financier told the Financial Times that Iran, which is
competing with Gazprom to provide gas to the Caucasus, was considering
a switch in policy by selling its gas to Russia through central Asia
because the US was blocking its access to Europe and India.

Lack of investment by Gazprom, which supplies Europe with about a
quarter of its gas, means that Russia will be increasingly reliant
on buying gas from central Asia or Iran to help meet its subsidised
domestic needs and export commitments. Cliff Kupchan, analyst with
the Eurasia Group consultancy, said he had a different understanding:
that Russia and Iran would co-ordinate their gas export policies,
with Moscow selling to the west and Iran to the east.

The stage is set for a bidding war between Russia, China and western
energy companies over central Asian oil and gas.

Deals are proceeding at a bewildering speed. Turkmenistan signed
a framework deal in Beijing this month to sell gas to China, while
Nursultan Nazarbayev, Kazakhstan president, visited Moscow for an
agreement to double the capacity of a main oil pipeline for exports
to Russia.

But the US wants Kazakhstan to look in a different direction.
"Kazakhstan as the anchor is the desired approach," Dan Stein,
regional director of the US Trade and Development Agency, told a
US-Azerbaijan investment conference.

US officials outlined their desire to see a gas pipeline from
Kazakhstan's Kashagan field across the Caspian, linking with
Azerbaijan's Shah Deniz field and then heading west to Europe via
Georgia rather than north through Russia.

"The market is not working," said Matt Bryza, US deputy assistant
secretary of state, noting that Gazprom buys central Asia gas for $55
per 1,000 cubic metres then sells it for double that in the Caucasus
and for $265 to Turkey.

"Something has to change," he said, and that would come through market
forces and new transport routes. He stressed that new pipelines had
to be commercially viable.

Mr Aliyev's three-day visit to Washington appears to have been
successful, helped by European and US alarm at what they interpreted
as aggressive comments by Alexei Miller, Gazprom's chief executive,
last week.

However, US officials dismissed suggestions that they were trying to
"clip the wings" of Gazprom.

The US has to tread carefully as its oil majors are competing for
participation in Gazprom's Shtokman project under theBarents sea.